Question

Asked Sep 10, 2019

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You buy a mutual fund for $1,000. It annually distributes $60 for eight years, after which you sell the shares for $900. What is the annualized return on your investment?

Step 1

Expected rate of return can be described as the total profit or loss on a particular investment over a set period of time. Expected rate of return is generally stated as a percentage in relation to primary cost of investment.

It is given that,

Initial cash outflow is $1,000.

Annual cash inflow is $60.

Cash inflow at the end of year 8 is $900.

Step 2

The formula to calculate present value will be helpful to calculate the expected interest rate.

The below expression can be used to calculate expected interest rate:

Step 3

Substitute $60 for *C* and $900 for *FC...*

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